On
the Internet, a Big Win for Consumers

The FCC strikes a blow for the free market

It may be true that Al Gore has
about as much to do with the growth of the Internet as the rooster's
crow does with causing the sun to rise. Nevertheless, the free
development of the Internet got a huge boost last week, and this time
the Clinton/Gore administration really does deserve much of the
credit.

At
issue was an attempted theft of property rights that — had it not been
stopped — would have severely impaired the growth of a high-speed
Internet. After buying the cable-television company TCI, AT&T began a
massive upgrade of the cable lines, to allow them to provide
high-speed "broadband" connection to the Internet. At least five times
as fast as a conventional narrow-band dial-up connection via
telephone, these broadband connections allow the user to overcome the
"world-wide wait" — and also encourage the development of streaming
video and other Internet services which require high bandwidth.

If
you sign up for broadband Internet service from AT&T, or another
cable-television company, the company will install a cable modem in
your computer, and for about $39.95 per month, you can surf the
Internet at record speeds. With AT&T, your Internet Service Provider
(the company that provides the link between your cable line and the
rest of the Internet) will be Excite@home, a company with whom AT&T
has a contractual relationship. Using Excite as your ISP, you have
full access to the entire Internet. If you want to use a different
ISP, then you just pay an additional fee, in order to piggyback on top
of Excite.

The broadband cable deployment is great news for consumers, but
terrible for other ISPs. For example, soon after the cable threat
appeared, phone companies had to make massive price cuts for their own
Digital Subscriber Line (DSL) services. (DSL allows broadband Internet
connections via a conventional telephone line.) Formerly concentrating
on highly profitable business customers, the phone companies now
needed to bring DSL prices down to meet the cable competition, and to
begin widespread advertising to consumers, lest the consumers sign up
for cable broadband first.

Also disadvantaged by the introduction of cable broadband were all the
slow-speed, dial-up ISPs, such as Mindspring and America On-Line. For
only 10 to 20 dollars a month more than the narrowband ISPs were
charging, a customer could get a vastly faster Internet connection,
via cable modem.

At
the behest of AOL (king of the slow-speed world), many of the
telephone companies and slow-speed ISPs got together to start lobbying
against cable broadband. Claiming to be in favor of "Open Access"
(more accurately, Forced Access), the slow-speed lobby urged hundreds
of city councils and state legislatures to cripple cable broadband by
regulation.

According to AOL et al., the cable companies should be forced to allow
any ISP to connect to the cable broadband system, at the exact same
price paid by the cable company's own affiliate (such as Excite@Home).
The massive influx of ISPs would quickly overwhelm the available cable
bandwidth, and bring high-speed cable to a crawl. That would suit the
slow-speed companies just fine.

The Forced Access push was rejected almost everywhere it was proposed,
and lost its founder when AOL bought its own cable-television system
(Time Warner's), and immediately
changed its mind about the issue.

But a few jurisdictions, including Portland, Oregon, imposed Forced
Access, in a misguided belief that forcing an innovative company to
share its property with competitors will promote more innovation. It
was as if a restaurant which invented a new high-speed stove were
legally forced to allow every chef in town to have "open access" to
the stove. After a federal district court upheld the Portland
regulators, the Ninth Circuit Court of Appeals took up the case.

And this is where the Clinton/Gore Federal Communications Commission
rode to the rescue. In an amicus brief filed before the Ninth Circuit,
the FCC pointed to the success of the FCC's "unregulation" policy on
broadband. The FCC pointed out that the best way to prevent monopoly
was not by taking the property of innovators like AT&T, but by
encouraging cable to compete with DSL — and both to compete with
satellite and other wireless broadband technologies.

In
the lower court, both AT&T and Portland had assumed that cable
broadband was a "cable service," under the federal Telecommunications
Act. But the FCC argued that the assumption might have been incorrect,
and noted that the FCC was still studying the issue. On June 22,
the Ninth Circuit agreed, and held that Internet connection, such
as provided by AT&T, is not a "cable service," under the
Telecommunications Act. A cable service is one-way (television
programs into the home), whereas Internet connections are two-way (the
home sends information to the Internet, and also receives
information). Excite@Home (the ISP for AT&T broadband) was providing a
"telecommunications service." According to the federal
Telecommunications Act, companies which provide "telecommunications
service" don't need franchise approval from local governments.
Therefore, Portland's attempt to impose Internet Forced Access, as a
condition for AT&T acquiring TCI's license to provide ordinary cable
television, violated federal law. Thus, the whole state and local
lobbying campaign against AT&T has been futile, for only the FCC has
authority to impose Forced Access. (Other federal courts are not
required to follow the Ninth Circuit's decision, but the decision is
so well-grounded in the federal statute that there seems to be little
chance of a Circuit split developing.) And the FCC knows to leave well
enough alone.

FCC Chairman William Kennard explained why he believes that imposed
Forced Access is destructive: "The broadband market is fertile, but
still undeveloped. The future is bright, but still glimmering in the
distance. We are about 50 meters into a race that is sure to be a
marathon.

"Sometimes people talk about broadband as though it is a mature
industry. But, the fact is that we don't have a duopoly in broadband.
We don't even have a monopoly in broadband. We have a NO-opoly.
Because, the fact is, most Americans don't even have broadband.

"We have to get these pipes built. But how do we do it? We let the
marketplace do it.

"If we've learned anything about the Internet in government over the
last 15 years, it's that it thrived quite nicely without the
intervention of government.

"In fact, the best decision government ever made with respect to the
Internet was the decision that the FCC made 15 years ago NOT to impose
regulation on it. This was not a dodge; it was a decision NOT to act.
It was intentional restraint born of humility. Humility that we can't
predict where this market is going.

"Who among us could have predicted the incredible advances of the past
few years? Who at the beginning of this decade could have predicted
the embrace of e-mail by all ages, the birth of the World Wide Web,
the advances in communications technology?

"In a market developing at these speeds, the FCC must follow a piece
of advice as old as Western Civilization itself: first, do no harm.
Call it a high-tech Hippocratic Oath.

"So with competition and deregulation as our touchstones, the FCC has
taken a hands-off, deregulatory approach to the broadband market. We
approved the AT&T-TCI deal without imposing conditions that they open
their network." (William E. Kennard, Chairman, FCC,
Remarks before the National Cable Television Association, Chicago,
June 15, 1999)

Property rights, Internet innovation, and consumers all won a big
victory. AT&T's lawyers deserve applause for fighting for their
company's rights; and the FCC's lawyers and Chairman deserve applause
for fighting for yours.

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comments to Independence Institute, 727 East 16th Ave., Colorado 80203. Phone 303-279-6536. (email) webmngr @ i2i.org